Northland Capital TRP, ECK, EDT, HOIL, EOG,TLW, FPM, 3LEG
TMT: Eckoh ( LON:ECK)
FY PRE-CLOSE: IN LINE, STRONG OUTLOOK
FY adj. PBT expected to be in line with forecast with double digit organic growth supplemented by the acquisition of Veritape in June 2013. Strong H2 performance.Contract wins across Travel, Logistics, Telecommunications and Retail sectors will start to generate revenue in FY15. Successful launch of Eckoh Inc in the US for secure payment solutions. Market interest is being driven following the Target data breach in December 2013.Cash at year end of £7.3m (FY13: £8.5m) available to fund investment programme and potential acquisitions. Increasing the FY dividend by 25% to 0.3125p.FY results scheduled for 10th June.
NORTHLAND UK VIEW: Positive pre-close and a strong outlook statement given contract wins in H2. US represents a massive opportunity as it has been slower to adopt secure payments though standard wealth warnings about US expansion apply. Growth opportunity reflected in the current rating (33.4x FY15 consensus EPS) and a share price progression that has been relatively immune to the recent tech sell off.
MONTHLY SUMMARY
Hands in pockets
The standout feature in April was the broad based recovery in M&A activity culminating in Pfizer’s approach for AstraZeneca and GE’s bid for Alstom’s energy arm at the end of the month. The large levels of cash sitting on company balance sheets has been a feature for the past couple of years as boards fretted about uncertainty in the three major trading zones and bank lending remained constrained. As a result, buybacks and increased dividends have been the main use for spare cash until the global recovery took on a firmer footing. TMT was the first sector to move and accounted for an unprecedented third of the $593bn M&A announced in the first quarter. M&A will continue to be a feature as TMT companies seek gain/maintain a competitive edge and US companies look to make use of overseas cash piles but activity has now spread to other sectors and this should help to maintain equity market multiples with investors seeking takeout targets. IPO volume has also provided exits for private equity and these will return as prominent players in small and mid-cap M&A as they recycle capital. Appetite for some of the more speculative ‘story’ IPOs has faltered recently as funds rotate into other sectors and profits are taken but the outlook remains relatively buoyant against a backdrop of persistent low interest rates. Sterling’s strength does represent a headwind for an export-based recovery, however, and is becoming a feature of earnings’ reports.
OIL & GAS: Tower Resources ( LON:TRP) announced FY13 results, an acquisition, farm-ins and a major placing. We reduced our rating to HOLD on the spud of key Welwitschia-1 well (24/04) cautioning that whilst the attractive well could be transformational, it will erode significant shareholder value if dry. Europa Oil and Gas ( LON:EOG) interims gave us cause to upgrade FY14 (to July) estimates. Value has shifted to the exploration prospects with two key UK wells to be drilled this year. An affirmative Kosmos drilling decision on the Porcupine Basin assets could provide a significant summer catalyst. M&A provided a welcome boost with a recommended offer for Heritage Oil ( LON:HOIL) at a 25% premium. After surpassing our 237p PT, our rating was under review. Our PT was based on a conservative analysis of OML30 and did not factor in exploration upside but there is risk and the premium looks attractive. This news has positive sentiment read-across for Eland Oil and Gas ( LON:ELA) producing from nearby OML40, Nigeria. Tullow Oil’s ( LON:TLW) sale of two UK North Sea gas properties to Faroe Petroleum ( LON:FPM) for $75m is a modest but welcome deal and hopefully a sign of more to come. Tullow is in need of better news at the drill bit to support its sector-premium rating, following an uncharacteristically fruitless period but remains interesting. 3Legs Resources ( LON:3LEG) advanced towards the key frac of its Lublewo LEP-1ST1H well in its Lebork concession in the Polish Western Baltic Basin, of Poland. It announced the successful drilling of a 1,512m section. If successful, the frac should provide a good indication of commercial potential in Q314. We reiterated our BUY rating.
MINING: The improvement in the performance of London listed mining and exploration companies at the start of the year failed to continue into April with around 66% of mining companies’ share prices moving into negative territory. This is a still an improvement on 2013 where 78% of companies finished the year with lower share prices. This month we downgraded our price target for Alexander Mining ( LON:AXM) to 6.1p from 8.1p following the Ebullio Group’s decision to terminate its agreement to acquire the Turkish assets of Red Crescent Resources. As a result, Ebullio will not proceed with the commercial licence, financing and consultancy agreement with Alexander Mining in its current form. Ebullio remains committed to mining investment in Turkey and it plans to acquire suitable assets in the country. Ebullio also remains committed to establishing a commercial scale zinc cathode AmmLeach® production plant in Turkey. Ebullio and Alexander Mining will meet shortly to discuss a revision of the agreement to reflect these intentions.
TMT: AdEPT Telecom ( LON:ADT) announced an in line pre-close FY update as well as the acquisition of Bluecherry Telecom for an initial £1.8m consideration (up to £0.75m deferred). AdEPT’s high levels of profit generation and cash conversion is funding the progressive dividend policy and customer contract acquisitions in the fragmented reseller market. The recommended cash offer for audio chip designer Wolfson Microelectronics ( LON:WLF) by Cirrus Logic led some to bemoan the loss of a potential national champion but the company has endured a fairly torrid time since losing the Applecontract in 2008 and the failure to transition fast enough to 4G has resulted in a loss of market share. A 75% premium to the undisturbed price remains a result for many.
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